There is considerable confusion on what federal employees and retirees can do to convert all or a part of their TSP funds to a TSP ROTH. There are limitations and unfortunately you can’t convert any of your current TSP funds to a ROTH within the TSP program. There are only 2 ways to get ROTH money into your TSP account:
- From your future pay — you’ll notify your agency or service that you want to make Roth contributions, or
- Transfer Roth money into your account directly from eligible plans (Roth 401(k)s, Roth 403(b)s, or Roth 457(b)s only).
You will not be able to transfer money into the TSP from Roth IRAs. Also, you will not be able to convert money that is already in your TSP account into Roth money. Along the same lines, agency automatic and matching contributions will always be traditional, tax-deferred contributions, even if your own contributions are only Roth. You will not be able to convert any agency traditional contributions into Roth contributions.
That being said, there are no limitations on transferring your TSP funds when eligible to a private sector ROTH account  outside of your TSP. Federal employees and retirees may discover that shifting some or all of their THRIFT savings or traditional IRAs into a ROTH will save them taxes on investment earnings and growth long term. Roth IRAs provide tax-free earnings on your contributions however you MUST pay taxes on your initial ROTH contributions. The amount that you transfer into a ROTH is fully taxed at current tax rates. Since you already paid taxes on your contributions you can withdraw them from a Roth IRA at any time tax-free.
Generally, if your account has been open for at least 5 years, your earnings are tax-free when you withdraw them. Usually, you must be 59½ or older in order to avoid paying a 10% early withdrawal penalty tax on your earnings. Other exceptions to the withdrawal penalty tax may also apply. IRS publication 590  provides detailed guidance.
Roth IRAs do not require minimum distributions for participants starting at age 70½ like traditional IRAs require and beneficiaries pay NO INCOME TAXES for inherited accounts open at least five years. ROTH IRAs are one of the few investment vehicles that we have, other than municipal bonds that may earn tax free income.
For more information on ROTH accounts visit our TSP ROTH page  and review the extensive FAQ that we have on the site to determine if a ROTH is right for you. Current federal employees should review this carefully, a ROTH can be highly advantageous and devoting at least a part of your contributions to a ROTH could prove worthwhile. Roth contributions are taxable unlike your standard TSP contributions. I converted half of one of my retirement account to a ROTH in 2010 and was able to pay the taxes over the next two years. The conversion added to my taxable income for both years however since converting to a ROTH my account has increased in value by 33% and all capital gains and dividends are tax free as long as I keep the account for 5 years before withdrawing any of the gains. There is no penalty if you have to withdraw any part of your original contributions because you already paid taxes on them when you converted.
Recent Forum Host Articles:
- Strategies For Increasing Your Retirement Annuity & Income 
- Important IRS Adjustments for 2013  by Paul Risser
- What Will You Do in Retirement?  by Dennis Damp
- Best Dates to Retire 2012 and 2013  by Dennis Damp
Request a Retirement Benefits Summary & Analysis  from a local adviser. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.
Visit our other informative sites
- Federal Government Jobs & Career Center 
- FREE Federal Employee’s Retirement Planning Guide 
- Federal Employee’s Career Development & IDP Center 
- Post Office Jobs & Career Center 
- Job Search – All Sectors 
- Environmental Health & Safety Jobs Center 
- Nuclear Jobs & Careers  – High Paying Jobs
- Stolen Car Plates & Recovery Guide 
- Take Charge of Your Federal Career 
- The Book of U.S. Government Jobs 
Distribute these FREE tools to others that are planning their retirement
- 2013 Excel Leave Chart (target 2013 retirement dates and determine exact leave balances for each date)
- 2012 Excel Leave Chart  (target 2012 retirement dates and determine exact leave balances for each date)
- How to be Emotionally and Physically Prepared When You Retire 
- How to be Financially Prepared When You Retire 
- Master Retiree Contact List  (Important contact numbers and information)
- Survivor’s Guide 
- Estate Planning Guide (An 11 part series that will help readers prepare for retirement, understand basic estate planning techniques, and compile their personal “Survivor’s Guide” binder.)
The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.
Last 5 posts by Dennis Damp
- Notice of Annuity Adjustment and 1099 R Tax Forms  - January 11th, 2020
- 3.1% GS 2020 Pay Raise – Pay Charts Now Available  - December 30th, 2019
- Safety, Health & Convenience – The Apple Watch Connection  - December 14th, 2019
- BCBS Basic to GEHA Standard Comparison + Medicare & You  - November 29th, 2019
- Open Season Health Plan Review & Changes  - November 24th, 2019
- The Ultimate Retirement Planning Guide – Start Now!  - November 15th, 2019
- 2020 FEHB Plan Selection Guide  - October 30th, 2019
- Open Season Precautions – Fraud Alert  - October 24th, 2019
- 2020 COLA and Annuity Projection Calculator Update  - October 12th, 2019
- 2020 Leave Chart & Schedule Tracker Now Available  - October 6th, 2019
- Health Care Premiums Rising - What Else is New!  - October 4th, 2019
- 2020 COLA and the 2019 Health Care Open Season  - September 15th, 2019